Ottawa willing to give more pot tax revenue to provinces to help cities

Growing flowers of cannabis intended for the medical marijuana market are shown at OrganiGram in Moncton, N.B., on April 14, 2016. (Ron Ward/The Canadian Press)

The Trudeau government is willing to give provinces and territories a bigger share of the revenue from a federal excise tax on cannabis, provided that the extra money is devoted to helping municipalities cope with the impact of legalizing recreational pot.

The feds have proposed giving provincial and territorial governments half of the estimated $1-billion annual excise tax take once weed becomes legal next July.

But The Canadian Press has learned that Finance Minister Bill Morneau and his officials have signalled a willingness to increase that share when they sit down next week with their provincial and territorial counterparts.

The discussions have been taking place in preparation for a meeting of federal, provincial and territorial finance ministers Dec. 10-11, where the issue of cannabis taxation is expected to be front and centre.

Any increase in the provincial share will obviously mean less for federal coffers. But precisely how much less than 50 per cent the federal government is willing to accept has not yet been revealed.

A government official close to the discussions, who was not authorized to speak publicly about the matter, said it’s too early to float specific numbers. The final decision will rest on an assessment of the needs of the municipalities — and a willingness by provinces and territories to agree to devote the extra revenue to those needs, the official said.

“I’ve always said all along that the municipalities and the province need to get a proper share to cover those costs,” he said Monday.

“We have a lot of out of pocket (expenses) right at the start … that needs to be recovered. So we will work closely, we want to make sure that municipalities are covered as well.”

However, before agreeing to anything, Sousa said he needs to see a breakdown of the costs that are going to be incurred and how much of those costs the federal government is prepared to assume. He said he expects to hear more on that front at the finance ministers’ meeting next week.

Mayors across the country have raised concerns about the potential cost to municipalities.

“We all need to know that legalization will not download unsustainable financial or operational burdens to municipalities,” the Federation of Canadian Municipalities says on its website.

Toronto Mayor John Tory has predicted municipalities will face additional costs for policing, enforcement, public health, zoning and licensing. He wrote Ontario Premier Kathleen Wynne last July, asking her to consider dedicating a portion of provincial pot revenues — possibly through a special levy — to municipalities.

“Whatever decisions are made, I have no doubt the result will be increased costs for the City of Toronto,” Tory wrote.

The federal government is sympathetic to the concerns of municipalities, the official said.

Under the current proposal, the federal government would impose an excise tax of $1 per gram of marijuana or 10 per cent of the final retail price, whichever is higher, with half the revenue going to provinces and territories.

Federal and provincial sales taxes would be applied on top of that.

A one-month public consultation period on the excise tax proposal closes Thursday, just ahead of next week’s meeting.

Premiers have been complaining since early October, when Prime Minister Justin Trudeau first unveiled the excise tax plan, that a 50-50 revenue split with Ottawa is not good enough. They maintain their governments will shoulder the lion’s share of the cost of legalization — including public education, policing and road safety — and should, therefore, get the lion’s share of the tax revenue.

Co-ordinating cannabis taxation with the provinces is crucial to the federal objective of drumming organized crime and gangs out of the illegal pot business and keeping marijuana out of the hands of minors. If the price of legal marijuana is not competitive, the black market will continue to flourish.

Under the federal proposal, sales and excise taxes would be levied on both fresh and dried marijuana, pot-infused oils and seeds and seedlings used for home cultivation.

They would also be applied to medical marijuana, on which only HST is currently levied. That proposal has drawn fire but the government argues it’s necessary to ensure there’s no incentive for people to seek out medical pot just because it’s cheaper.

The final price tag for legal weed will vary across the country, since provinces have different levels of sales tax.